Definition Of Business
The term business is understood and explained in different ways by different people. For some, business is an activity, for some it is a method of transacting, for some others, it is a method of money making and some people argue that business is an organized activity to achieve certain pre- determined goals or objectives. Dictionary meaning of business is: the act of buying and selling of goods and services, commerce and trade. Based on all these meanings of business, we may define business as: gainful activity through which various elements of society conduct exchanges of the desirable things.
Nature Of Business
Business may be understood as the organized efforts of enterprise to supply consumers with goods and services for a profit. Businesses vary in size, as measured by the number of employees or by sales volume. But, all businesses share the same purpose to earn profits.
The purpose of business goes beyond earning profit. There are:
Ք It is an important institution in society.
Ք Be it for the supply of goods and services Ք Creation of job opportunities
Ք Offer of better quality of life
Ք Contributing to the economic growth of the country.
Hence, it is understood that the role of business is crucial. Society cannot do without business. It needs no emphasis that business needs society as much.
Business Goals
Profit - Making profit is the primary goal of any business enterprise. Growth - Business should grow in all directions over a period of time. Power - Business houses have vast resources at its command. These resources confer enormous economic and political power.
Employee satisfaction and development - Business is people. Caring for employee satisfaction and providing for their development has been one of the objectives of enlightened business enterprises.
Quality products and services - Persistent quality of products earns brand loyalty, a vital ingredient of success.
Market leadership - To earn a niche for oneself in the market, innovation is the key factor.
Challenging - Business offers vast scope and poses formidable challenges.
Joy of creation - It is through business strategies new ideas and innovations are given a shape and are converted into useful products and services.
Service to society - Business is a part of society and has several obligations towards it.
Definition Of Business Environment
“The total of all things external to firms and industries which affect their organization and operation”—Bayard O. Wheeler
According to Arthur M. Weimer, business environment encompasses the ‘climate’ or set of conditions, economic, social, political or institutional in which business operations are conducted.
Types Of Environment
The business environment poses threats to a firm or offers immense opportunities for potential market exploitation. The business is determined by two factors namely:
1. Micro environment or internal factor or endogenous factor.
2. Unit I
Introduction business environment - Nature and factors in
business environment and their interaction, Concept of Business,
Levels of the Business Environment, Understanding the
environment, Type of Environment-internal, external, micro and
macro environment, competitive structure of industry,
environmental analysis, elements of business environment
3. Meaning of Business Environment
Business Environment consists of all those factors that
have a bearing on the business, such as the strengths,
weaknesses, internal power relationships and
orientations of the organisation; government policies
and regulations; nature of the economy and economic
conditions; socio-cultural factors; demographic trends;
natural factors; and, global trends and cross-border
developments.
4. Definition
Business Environment consist of all those factor
that have a bearing on the business.
A business environment is the social,
technological, economic and political
environment in which a business functions. The
business environment affects organizational
decisions, strategies, processes and
performance
5. Nature of Business Environment:
The nature of Business Environment is simply and better explained by the
following approaches:
(i) System Approach:
In original, business is a system by which it produces goods and services for the
satisfaction of wants, by using several inputs, such as, raw material, capital,labour etc.
from the environment.
(ii) Social Responsibility Approach:
In this approach business should fulfil its responsibility towards several categories of the
society such as consumers, stockholders, employees, government etc.
(iii) Creative Approach:
As per this approach, business gives shape to the environment by facing the challenges
and availing the opportunities in time. The business brings about changes in the society
by giving attention to the needs of the people
9. Environmental Forces
1. Business Environment
2. Task Environment
3. Competitive Forces in the Task Environment
4. Technological Forces
5. Political and Legal Forces
10. The General Environment and Environmental Forces
Affecting Organizations
Adapted from Figure 3.1
The General Environment
Cultural Forces
Political - Legal Forces
Technological Forces
Competitive Forces
Organization
3.2
11. Components of Business
Environment
Social environment : The social environment is the
identical or similar social positions and social roles as a
whole that influence the individuals of a group.
Technological environment: Technological environment
hold new technological innovation, new products, the
state of technology, the utilization of technology for
maximum inputs and outputs, the obsolescence of
technology and the dynamic changes that frequently
occur in technologies which enable firms to get a
competitive advantage.
12. Components(contd.)
Economic environment : The economic environment consists of the
Demand dynamics,
Supply situation,
Pricing factors,
Degree of competitiveness,
Impact of profitability.
It includes the fiscal policy, monetary policy and the taxation policy, the
FDI norms, the investment criterion and financing decisions.
13. Components(contd.)
Political environment : The political environment includes
Regulatory burden and red tape,
Taxes levels of political corruption,
Public works services,
Labor market regulation,
Policy predictability,
Property rights,
Contract enforcement,
Regulations controlling startup and
Bankruptcy, competition law,
14. FEATURES OF BUSINESS
ENVIRONMENT
sum total of all factors external to the business firm and
that greatly influence their functioning
covers factors and forces like customers, competitors,
suppliers, government, and the social, cultural, political,
technological and legal conditions
dynamic in nature
difficult to predict the exact nature of future happenings
differs from place to place, region to region and
country to country
15. IMPORTANCE OF BUSINESS
ENVIRONMENT
Determining Opportunities and Threats
Giving Direction for Growth
Continuous Learning
Image Building
Meeting Competition
Identifying Firm’s Strength and Weakness
18. The Common Entry Barriers
1. Government Policy
2. Economies of Scale
3. Cost Disadvantages Independent of Scale
4. Product Differentiation
5. Monopoly Elements
6. Capital Requirements
20. Concept of Business
In Layman terms, business means to get something at low cost and
sell it at a higher cost, meanwhile, the margin produced between
that is the profit. Business’s only purpose is profit, it is driven by it.
Business is derived from the word ‘busyness’ meaning engaged in
an activity.
If we were to define business in much finer terms, we can say
that “Business is any occupation which includes all activities which
are connected with production or procurement of goods for sale
and adding a profit margin to that costs for further selling it to the
customer for the satisfaction of their needs.”
21. Characteristics of Business
Characteristics are the features which are necessary to classify the business. Therefore let’s
have a look at them.
Economic Activity
Business necessarily has to be an economic activity. But what exactly is an economic
activity? Any activity that gives a monetary return is an economic activity. For example, if
your friend’s father picks you up and drops you at college every day, he is doing this act out
of kindness. But if he starts a transportation service of picking up and dropping by charging
money then it’s an economic activity.
Production or Trading of Good or Services for Sale
If a business plans on selling a product, it has to either manufacture that product or purchase
it and add a profit margin to it and sell it further. Business is interested in every activity that
is concerned with the production or purchase of goods for selling, this makes it one of the
most important characteristics of a business. Services for sale include transportation,
housekeeping, and security. Whereas, goods are mostly consumable items.
Sale or Exchange of Goods and Services
The third and crucial one of the characteristics of business after production or procurement
is to sell that product for the money. The way to sell a product or service is by launching it
in the market or to offer it for sale. A sale or exchange must take place between the seller
and the buyer.
22. Regularity in Dealings
Business is a repeatable economic activity that generates money. For example, if you sell your old bike and it
generates money. Also, it’s an economic activity but is you doing this on a regular basis? No. As it has no
regularity in it, it cannot be accepted as a business activity. Similarly, there is a dealer who deals in the
purchase and sells of second-hand bikes. For him, it’s a business activity as there is a regularity in his
dealing. A single transaction of purchase or sale cannot be classified as a business.
Profit Earning
The sole purpose of business is the maximization of profit. It steps into the market with the main objective of
earning a profit. For the survival of business in a market, generating profit is extremely necessary. If a
business can’t produce profit, it is expected of it to go downhill financially. Therefore the businessman does
all the possible tricks to maximize its profits by increasing the volume of sales or decreasing the costs
Risk Factor
It is well known “Higher the risks, higher the return”. Business attracts risk. While initiating business it is
not guaranteed 100% that the business will be successful. There is an anticipation that there might
be demand for its product or service in the market. But the market is always dwindling the subject to risk.
The business may even earn profit but the amount of profit earned may vary.
Uncertainty of Returns
Businessmen invest huge capital in their activities to sustain and extract profit from the business. As we
discussed the risk above, it is very uncertain as to what amount the profit will be earned. Often there are
situations where is no return of profit. There are always chances of losses in the business activities.
Legal Activity
The business has to be legal and lawful. Business is an extremely important activity for a country but it is not
above the law. Every economic activity has to be within the limits of the law. The country’s legislation puts
clauses on the functioning of the business to control its activities.
25. Internal Environment
Company Image and Brand
Human Resources
Internal Power Relationship
Management Structure and Dimensions
Mission and Objectives
Value System
26. InternalEnvironment:
Internal Environment refers to the factors existing within a business firm. These internal factors are considered to be controllable because the
enterprisehascontroloverthese factors.ThemaininternalfactorswhichinfluencesBusinessDecisionsareasfollows:
A. Culture: The values, beliefs and attitudes of the founder and top management of the company exercises a strong influence on what the
company stands for, how it does things and what it considers important. When the value system is shared by all the members, the
organizationislikely to bemoresuccessful.
B. Mission And Objectives:The Objectives of all the firms is assumed to be Profit Maximization in the long run. But Mission is different from
this narrow objective ofprofitmaximization.Missionis definedas theoverall purposeorreason for existence whichguidesand influencesa
firmdecisionsand economicactivities.
C. Top Management Structure: The structure of the organization also influences the business decisions. The composition of the board of
directors, the degree of professionalization of management and the organizational structure of a company have a important bearing on its
businessdecisions.
D. Power Structure: The internal power relationship between the board of directors and the Chief Executive Officer is an important factor.
The extent to which the top management enjoys the support of shareholders and employees at different levels, also has an important
bearingondecisionmaking.
28. External Environment refers to the factors existing outside a business firm.
These External factors are considered to be uncontrollable because the
enterprise has No or Partial control over these factors. Further, External
Environment can be divided into two types Namely:
30. A. Micro Environment: Micro Environment consists of the factors in the company's immediate environment. These factors
affectsthe performanceof the company and itsability to servethe customers.Micro Environmentconsistsof thefollowing:
I. Customers: Customers constitutes an important segment of the micro environment. Customer is the king of the market and every
businessexiststo serveitscustomers.A businesshas nomeaninguntil and unlesstherearecustomersto serve.
II. Suppliers: Suppliers are the person who supply various inputs such as money, raw material, fuel, power etc. and help in the smooth
conduct of business. Further, firms should have more than one supplier so thatchanges in the policies ofone supplier does not effect their
productionschedules.
III. Competitors: Competitors form an important part of the Micro Environment. Business Firms compete to capture a larger share in the
market.They constantlywatchthe competitorspoliciesandadjusttheirpoliciesto gaincustomerconfidence.
IV. Company Image And Brand Equity: The image and Brand Equity of the company plays a very important and significant role in raising
finance,formingalliances,choosingdealersandsuppliersetc.
32. Macro Environment: The Macro Environment consists of the Economic and Non-Economic variables that provide opportunities
and threats to firms. This is largely uncontrollable and therefore, firms must adjust their operations to these environmental
factors.MacroEnvironment consistsof thefollowing:
I. Political Environment: Political Environment consists of the elements relating to government affairs. The political environment
providesthe frameworkwithinwhichbusinesshasto function.Themaincomponents of PoliticalEnvironmentare:
• TheConstitutionoftheCountry.
• PoliticalOrganization:includesPhilosophyofpoliticalparties,ideologyofthegovernment,natureandextentofbureaucracy,
influenceofprimarygroupsetc.
• PoliticalStability:includes structureofMilitaryandpolice force,electionsystem,Lawandordersituationetc.
• Imageofthecountryanditsleaders.
• Foreignpolicyalignmentornon-alignment.
• LawGoverningBusiness
34. Economic Environment
The totality of economic factors, such
as employment, income, inflation, interest rates, productivity,
and wealth, that influence the buying
behaviour of consumers and institutions.
Economic environment can be divided into three parts. We shall
now study their effect on business. They are as under:
(i) Economic system
(ii)Economic policies
(iii) Economic conditions
35. (i) Economic System:
It is necessary to know about the economic system prevailing in a
country in order to understand the economic environment.
Economic system influences the freedom or openness of business.
Economic system is mainly of three kinds:
(a) Socialistic Economic System
(b) Capitalistic Economic System
(c) Mixed Economic System.
36. (ii) Economic Policies:
Economic policies deeply influence the business of a country. The
economic policies are laid down to direct the economic activities.
Economic activities include import-export, employment, tax
structure, industry, public expenditure, public debt, foreign
investment, etc. In order to direct all these economic activities, the
following economic policies are laid down:
For example, under the import-export policy, restrictions on imports
will benefit the indigenous industry.
37. (iii) Economic Conditions:
Economic conditions are those conditions which are related with
possibilities of economic development of a country. On the basis of
the economic conditions the government starts various programs
the welfare of the people.
38. Political Environment
Political environment is the outcome of a combination of various
ideologies advocated by different political parties.
Factors connected with the activities of the government are
included in it, e.g., the type of government (single-party
government or multi-party government), the attitude of the
government towards different industries, progress in passing
different laws.
39. Technological environment in 1990s
The success or failure of any business is highly dependent on the type of
technology in use, the level of technological developments, the speed with
which new technologies are adopted and diffused, the type of technology
that are appropriate etc.
For many years in the past, India did not have a favorable attitude towards
latest technology to meet foreign standards. The reservation of products for
the small scale sector sometimes comes in the way of adoption of modern
technology if it involves capital investment higher than the specified limit.
40. Technological environment in 1990s
It is only after the introduction of liberalization and globalization of Indian
economy drastic changes have come in the technological standards in India.
Also very high duty structure made the import of latest technology not only
expensive but also almost impossible.
Today, the scenario has changed. Free availability of foreign exchange,
welcoming foreign collaborations, FDI, JVs, and setting up of MNCs have
led to development of various R & D centers in many firms. Even the
development taken place in the infrastructure has also facilitated the
technological development
41. Legal Environment
Many Acts are passed from time to time in order to control and
regulate business activities.
The sum total of all these Acts creates legal regulatory environment.
Acts are mossy passed to regulate such business activities as sale-
purchase, industrial disputes, labour, regulating partnership
business, regulating company business, foreign exchange, etc.
42. What is Social Environment?
Social environment is the totality of conditions which concern in the
effecting of the activity feature of a human being. Those conditions
promote or hinder, motivate or restrain, the characteristic activities
of a living being.
43. Cultural Environment
The cultural environment mean a environment which affect the
basic values, behaviours, and preferences of the society-all of which
have an effect on business decisions. Socio-cultural environment.
All companies often include an examination of the socio-cultural
environment prior to entering their markets.
